A few years on the procurement team have mainly left the company, or work with their heads down. When they do appear they do so with their fingers of blame pointing in all directions. The main target for the vitriol is the vendor, who is held responsible for failed promises, poor platform, bad project management and overcharging for every change request you require, but that you think probably was part of the original requirement. In the distance the sad, pathetic sound of a lone violin plays the last lament, before the client shouts the battle cry of “litigation”.

Which sound is familiar to you?

So it’s become a blame game. The emotions are high and at that point you need to understand where it has all gone wrong. In a recent project where BPG were brought in to help the organisation exit safely from their contractual obligations it became necessary to explain to the client that you need to identify one version of the truth before any litigation could proceed. What we found was:

• The project started (and continued) without any business objectives, outcomes or business led requirements documentation being in place.  - Nb without identifying what business outcomes have to be delivered there is no bench mark for holding the vendor accountable.
• The client believed that the software was substantively unstable and could not be relied upon by the business, so they continued to use in parallel the old systems developed by the in-house development team.
• The client organisation massively under resourced the project, put in place no change management and had no consistent governance processes for dealing with change requests, new software releases and defect fixes.
• The vendor/client relationship had broken down. There was substantive lack of trust about motives, strategy and project costs. Both sides believed the project had cost them money and that the other was ripping them off.
• The client was taking on the responsibility (contractually) of the vendor by employing its own expert independent of the vendor. Therefore paying twice for the one service.

BPG deliver rapid solutions to get projects like this back on track by:

• Reviewing and realigning behaviours within the context of the contract
• Defining corporate and operational goals and objectives and processes.
• Defining one version of the truth and understanding emotion versus evidence
• Ensuring  and supporting senior executive involvement  for the change process
• Driving vendor engagement and issue ownership
• Contract realignment to deliver controlled revenue for the vendor and costs for the client.

To find out how you can successfully resolve vendor ICT disputes, download our free white paper – Why Vendors Have More Responsibility to get Errant Projects Back on Track, Fast

In the J Murphy & Sons Limited v Johnson Precast Limited case, Clause 14(i) was a warranty of good workmanship, materials and compliance with standards. Clause 14(ii) was different and was described by the judge as being ‘draconian in its effect’. It read as follows:

‘In the event that the goods or any part thereof are found to be defective owing to faulty workmanship or materials and not arising from the Customer’s default, neglect, mishandling or misuse, but not limited to any deviation from catalogues or recommended operating instructions applied by the Company for use with the goods, the Company will, at its option, refund the price paid for or replace or repair any goods forming the whole or any part of the goods supplied provided always that the Company is notified in writing within 7 days of the discovery of such defects and in the event not later than 28 days from the date of delivery.’

The judge objected to the proviso as it meant that 29 days after the date of the services being delivered, no claim could be made, no matter how defective the service. Even aside from the very limited timeframe, this did not take into account the fact that the service would not be commissioned immediately and so there would be even less time from the project commencement in which the warranty period operated. Reducing a six-year limitation period to 28 days was ‘plainly and obviously unfair and unreasonable’. It did not comply with UCTA (the Unfair Contract Terms Act) requirements of reasonableness and so would be struck out.

Exclusion of liability

Mr Justice Coulson also split up the liability clause to allow for any offending bits to be severed. Under the judge’s numbering system, Clause 15(ii) said:

‘Save as otherwise expressly provided in Clause 14 the Company shall not in any circumstances be under any liability whatsoever to the Customer whether in contract, tort or otherwise for any defect in, failure of or unsuitability for any purpose of the goods or for any loss (including but not limited to consequential loss, loss of profit, loss of goodwill or similar financial loss), damage, claim or any other liability howsoever or whensoever caused whether or not due to the negligence or default of the Company or its servants or agents or to faulty design, specification, workmanship or materials.’

This was deemed unreasonably wide and also fell foul of UCTA. It is thought the Judge may have perceived the scope to be unusually narrow, and that simply offering money back for a service that was a component of a much larger project was simply not enough as the consequential impact of bad advice was significantly greater than the cost of the service delivered. Either way, the whole of Clause 15 (ii) was dealt with in one long paragraph and it was all struck out.

Takeaway: 

Service providers must be careful with imposing unreasonable time-limits, as they could turn what was an otherwise reasonable term of a project contract into one that is unenforceable.

A recent court case judgment has re-enforced the ‘duty to warn’ that professional service providers (such as strategic/outsourcing/technology partners) have to their clients.

The case, J Murphy & Sons Limited v Johnson Precast Limited was not a joint venture, technology or outsourcing based dispute. However, the judgment of the case applies equally well to strategic joint ventures, outsourcing and technology projects/programmes that involve service providers and where the end-client is reliant on the professional advice and expertise of an service provider.

Essentially, the case involved a specialist pipe vendor that represented itself as an expert in pipe technology and underground pipe laying. The case revolved around a construction company (Murphy) ordering pipe from the vendor (Johnson), although Murphy was responsible for the installation through another contractor. After the project had commenced, the structure of the construction project changed in that the type of pipe and the methodology for installation was no longer suitable. Although Murphy was aware of the changing nature of the project, it did not tell Johnson. Both Johnson and Murphy did not realise the changing nature of the project would have impacted the suitability of the pipe supplied by Johnson. Murphy, through its sub-contractor installed the pipe regardless. The materials used caused the pipe to fracture and caused significant damage to the rest of the structure. Murphy sued Johnson for not warning it of potential problems that, given it had represented itself as a specialist in its field, it must ought to have known would exist given the change in the project scope.

A not very well publicised case, Stephenson Blake (Holdings) Limited v Streets Heaver Limited helped set the scene for organisations that purchase professional services and advice. Basically, the judgment confirmed that when you purchase services from an organisation and you rely on their professional advice (for example, your service provider who you are reliant upon to deliver strategic outcomes), then those organisations have a ‘duty’ to ‘think for you’ and to ‘warn’ you of any issues that might have a material impact on your programme – before you enter into the contract. In essence, the your strategic partner is under a duty to:

• Explain what their advice covers
• Validate what it does not cover
• Validate the consequential impact on the programme of what their advice does not cover

If the service provider does not explain these items appropriately to you pre-contractually, then it usually becomes liable to remedy any misunderstandings over your programme at its own cost.

 An ‘on-going’ duty to warn

The ‘Murphy’ case outlined at the beginning of this article, now confirms that service providers are not only responsible for this ‘duty to warn’ pre-contractually, but that these duties are still in place throughout the life of the programme. Therefore, any service provider whose professional advice you are reliant upon has a duty to warn you of any issues that may continue to adversely impact your programme, even if the programme has already been entered into.

To identify just how powerful your actions on a programme can be in overturning the written terms of a contract – Clause 15(i) of the Murphy contract said: ‘The Customer must rely on its own skill and judgment and recognise good civil engineering practice in relation to the goods and shall satisfy himself that goods specified are suitable for the Customer’s intended purpose.

On the face of it, this term stated that the customer was responsible to make sure that any professional advice it received and any services it purchased from the service provider was suitable for its purposes. It expressly excluded the service provider from having any responsibility in this respect.

Despite this term being expressly written into a contract that both parties had signed, the Judge found that this term did not relieve the service provider from its on-going duty to warn the customer if it knew, or ought reasonably to have known about a potential (but relevant) problem with the customer’s programme.

 How does this affect me?

If for example, your service provider implements changes to an outsourcing service or upgrades some software but fails to warn you regarding any adverse impact that these changes may have (for example, the service changes don’t work or you lose software functionality as a result of the upgrade) then the service provider is accountable to put any adverse operational issues right at its own cost.

 Key Points:

• Your service provider has a duty to warn you about what their advice and solution covers and what it does not cover
• Your service provider must validate the consequential impact on the project of what their advice does not cover and, separately, the consequential impacts of what their solution does not cover
• This duty to warn exists not only pre-contractually but throughout the duration of the contract
• The duty to warn exists independently of any written terms in the contract.

To read more about your service provider’s duty to warn and why they have more responsibility to get errant projects back on track, please download our free white paper.

Standard contracts provided by the vendor will often try to exclude its responsibilities as a specialist. You might be familiar with the following examples:

• ‘The seller hereby excludes any warranty that this service is fit for its intended purpose’

• ‘The seller has no responsibility or liability if the service is not of satisfactory quality’

• ‘These terms are the entire agreement between us, we hereby exclude liability for your reliance on our pre-contractual promises, written or verbal representations, diagrams or mutual understandings unless it is attached to this agreement.’

Contracts – hidden responsibilities you might not be aware of

Contracts in the traditional sense have written terms. These terms usually outline the responsibilities each party has to one another. They also usually include what process will be followed and what costs will be payable to each party if the contract terms are not followed (breached).

However, there are also terms in contracts that are enforceable, but are not written down. They are called ‘implied’ terms. These are terms that because of the conduct, or expectation of conduct, from one party to another, the law states that certain responsibilities will exist between parties in an agreement.

Some contracts try to exclude these unwritten terms. However, the courts usually take a dim view where a party who has the most to gain tries to rely upon the exclusion (usually an external outsourcing/technology service provider), even though it would be unreasonable for them to do so.

Key points – Your service provider:

1. Is responsible for ensuring its service is fit for its intended purpose before they deliver the services for/with you
2. Cannot state that your pre-contractual requirements were ambiguous if challenges arise during the delivery of the services (which often results in the service provider asking for more money). It is up to the partner to validate your requirements prior to them accepting their participation in the project/programme
3. Cannot ‘contract out of’ being responsible for its advice. If its terms try to exclude responsibility for giving you the wrong advice or misrepresenting its capability or expertise, then it is likely a court would deem such terms invalid
4. Cannot misrepresent its abilities and the time it will take to implement the solution
5. Has a duty to warn you of any issues that might have a material impact on the service provision they are purporting to provide
6. Cannot expect you (the purchaser/client) to be responsible for being able to validate whether its service is appropriate for your requirements. The service provider must make it clear what process it must go through to validate whether its services are suitable to meet your expectations or not
7. Where technology projects form part of the programme, the service provider must ensure that its warranty periods are fair and reasonable – even if the contract terms state otherwise.

To learn more about hidden responsibilities,what advice you can rely on and how these will help pre or post contract please read our free white paper on why service providers have more responsibility to get errant projects back on track.

DE BEERS v ATOS ORIGIN [2010]

Have you ever had this happen to you? A vendor commences a major project – perhaps for a large software initiative, service commissioning or outsourcing. Part way through – say 6-12 months and they complain that you keep changing your mind (although you are pretty sure you don’t) about what you wanted; or perhaps they say they had underestimated the scale of the project because you didn’t document your requirements and expectations clearly.

In either event, it comes down to them wanting to charge you more money, or take longer to complete the project – or in some cases, both.

In some situations we have seen, the vendors even go as far to suggest that if you don’t agree to their demands, they’ll have to re-consider their position and potentially pull out of the project.

This happens in more projects than perhaps you’d like to feel comfortable with. Most clients believe that, in the event they don’t capitulate to the vendor’s demands for more resources and money, this will somehow allow the vendor to start reducing its efforts even further to the degree where service levels will drop dramatically – potentially threatening the continuation of the project in any form.

The Judgment

A recent judgment in a case shows how, if you are a client that has relied on a vendor that has represented/demonstrated it has specialist expertise, you can insist on the vendor fulfilling and completing the project at the original cost and time frame – even if the vendor complains he wants more money than agreed at the onset of the project.

If the vendor refuses to complete the project unless you pay them more, they can be held in breach of contract. The consequence of this, subject to what you claim, can be to put you in the position you would have been in had the vendor successfully completed the contract and you were obtaining the benefits you expected out of it.

What can you claim for?

In other words, you can claim for the cost of:

1. Having your requirements externally validated and checked by someone independent.
2. Contracting with another party for the replacement service, whether it be for software, service commissioning or outsourcing. This includes:

•    The management and staff time spent in:
•     Finding other specialist replacement vendors
•     Workshops, discussions and so forth evaluating proposals/solutions from vendors
•     Redrafting new contract terms
•     External support in the above activities
•    The time you and your staff spend in working around the problems caused by your vendors poor service
•    Time and costs spent in migrating the service to another vendor
•    Time and costs supporting your ‘business-as-usual’ with other temporary vendors in the event your vendor’s poor performance materially and adversely impacts the performance of your business or department.
•    All legal and expert fees in the progression of your case.

Considerations about your claim

Note there are two further things to be aware of. Firstly, the cost of the replacement service doesn’t have to be the same or lower than the service you have contracted for. The replacement service could in fact be two or three times more costly and you can claim the full amount from your incumbent vendor.

How can this be the case? Because your vendor may have deliberately ‘low-balled’ the price of the service in the expectation that they could threaten you with increases once you are reliant upon them to provide the service. So the Courts take the view that the price you paid from the incumbent vendor isn’t necessarily what you would pay in normal open market conditions.

The second note is that whilst the cost of the replacement service might well be more than the incumbent service, you can’t claim for what is known as ‘betterment’. This doesn’t mean that where the old service failed and the new service works, that you can’t claim for this. That is expected. No – it’s where you add additional services that didn’t form part of the original contract with your incumbent vendor. In those situations, you can’t claim for the extra bits you’d like from a new service.

Free White Paper Download

New Court ruling states your outsourcing and IT projects can be 35% lower in costs while making your vendors more accountable.

• How to cut costs quickly from new and existing major projects and outsourcing agreements.
• How to prevent unexpected costs from arising; if they do, who is responsible.
• How to avoid misunderstandings over your expectations.
• How to improve service delivery performance and forge strong relationships.
• How to ensure your own behaviours don’t undermine the contract (a common problem in doubling the costs and timescales of outsourcing agreements).
• How to achieve your benefits realisation, faster.

SOCITM has just published its annual Better Connected survey. In it, SOCITM complain Councils still don’t embrace the digital route when it comes to engaging with the public or delivering public services.

What is going on? We all know, and have known for years, that movement from face-to-face services to digital delivery has achieved modest progress. But more individuals have more ’on-line competency’ than ever before.

SOCITM states that “A vast majority of councils (68%) have failed to achieve more than two stars out of the possible four in Better Connected 2011, while only 2% or nine councils have achieved the four stars. They are Brighton & Hove, Bristol City, East Sussex CC, Eden DC, The City of Edinburgh, Lewisham, Richmond upon Thames, Salford City and SurreyHeath BC.

Ratings Drop

The number of four star ratings have dropped from eleven and only two East Sussex County Council and Salford City have retained their four star ratings. The number of three star sites is 131 (30% of the total 433) compared with last year’s 106 (24%). The remainder comprise 187 two star sites (43%), compared with 199 (46%), and 106 one star sites (25%) compared with 116 (27%). London leads the way where 67% of councils have received three or four star ratings while none of the Northern Ireland District councils received any three or four star ratings.

Shire County councils did reasonably well with 44% of them receiving three to four star ratings compared to Scottish Unitaries and metropolitan and shire district councils – 28% of whom have received the top two ratings in this year’s survey.

Better connected 2011 is based largely on analysis of the annual survey of the 433 local authority websites in England, Wales, Scotland and Northern Ireland that has been carried out since 1999. This year, 49 other public sector sites were also assessed, including fire and police services, PTEs, RSLs and a range of other government and third sector bodies.  “The web is no longer about technology. It is about delivering lower cost services designed around the user,” said Jos Creese, Socitm President. “Any public service organisation, therefore, which is not fully integrating the potential of web delivery in financial and customer service strategies is likely to be under-performing in both areas.”

Think Customer, Top Tasks, Go Mobile

In order to reduce their dependence on the traditional, more costly-to-serve, channels of phone and face-to-face, Better connected 2011 suggests that councils evaluate their website performance and focus on three interconnected themes – think customer, focus on ‘top tasks’, and go mobile.

• Think customer: managing the website should be seen as a broader part of managing customer access. The web team should be seen as part of customer service, and should see this as its primary goal.
• Focus on top tasks: for website performance to improve, visit failures must be reduced by identifying and managing top tasks on the principle that the more the site is used for any task, the more important it is to make that task quick and easy to use.
• Go mobile: local authorities are not immune from the trend to smart phones and their websites must be able to respond to the demand for web access ‘on the move’. A ‘top tasks’ approach to content presentation plays to this agenda as mobile devices are ideally suited to responding to a person wanting to complete a simple task.

There are some great examples of local authorities that have achieved effectiveness Channel Shift. In fairness, most of these Authorities were very forward looking and have been working on their Channel Shift for a number of years.

Once such excellent example of Channel Shift I saw recently was for Tameside Council. I met with their Deputy Chief Executive, Tim Rainey. He is an exceptionally intelligent chap with a pragmatic view of how their Channel Shift strategy has reduced their costs in some areas from hundreds of pounds per transaction to less than £1.

My suggestion? Call Tim and ask him to explain Tameside’s Channel Shift strategy and how it has made significant improvements in service levels for their citizens, but at the same time, cut their service costs significantly.

These changes apply to all the public sector, utility sector and recent defence and security public contracts. It is important to be aware of them to avoid potential vendor challenges to your tendering process; if not, you may already be in breach of the regulations for any new procurements you are in the process of undertaking.

These updated regulations:

• Impact all major procurements
• Impact the grounds upon which a vendor’s bid can be rejected
• Impact the standstill periods that apply
• Set new time limits for vendors that want to challenge your procurement process.

Best Practice Group has a Guide to the Key Changes to Public Procurement Regulations which you can download. It’s completely free and should help ensure your organisation remains compliant.

Having seen first hand the misery inflicted on people and their organisations by under performing IT system and outsourced services, it is imperative that having fought your way through the myriad procurement rules and actually selected a vendor, that a positive working relationship with your service provider starts at the outset of your new business system/outsourcing project. Having clearly aligned contractual roles and obligations helps safeguard against misunderstandings over expectations, prevent unexpected costs from arising, ensure good service delivery and that your project is implemented on time and to budget.

Free Guide Download

Click here to download a straightforward (no legal jargon) guide to the Key Changes to Public Procurement Rules.

Yet again, just last week the Government confirmed the scrapping of another major IT project; £12bn of taxpayers’ money down the drain. But is it a relief for the NHS which needs to save some £20bn?

Organisations need manageable change, with buy-in from all parties concerned. It is hoped that a move to smaller, regionalised IT programmes will provide the building blocks needed to put the NHS back on a firmer foundation. Having a backbone of core national objectives to move services on to the web, like e-clinics, and to use available technologies, such as text messaging patients in advance of appointments cuts ‘do not attends’ by a third…are examples of simple projects that can be rolled out nationally and really do save money.

We do a good proportion of public sector and private sector work, advising various organisations on how to build relationships and align their contractual roles and obligations with their outsourcing and IT service providers. Having undertaken more than 500 major projects, in our experience although specifications are drawn up in advance, they are often output led rather than business objectives led. This simply gives service providers a blank chequebook as misunderstandings unfold. And it’s only when a project starts to go wrong that end-users find they have little or no contractual protection, even though the project doesn’t meet their expectations.

The Government plans to establish a watchdog to ensure projects are properly costed out in the future, but why is it needed? If applied correctly, lessons learned from a new court ruling can have far reaching benefits for NHS organisations embarking on a new IT system procurement, helping to ensure major projects are delivered on time, on budget, and, most importantly, original benefits objectives are realised – faster.

There’s no better medicine for transformation…

Free White Paper Download

New court ruling states your IT Software Projects can be 35% lower in costs while making your vendors more accountable.

Best Practice Group has written a White Paper that illustrates how to prevent unexpected costs from arising; how to avoid misunderstandings over expectations; and how to ensure behaviours don’t undermine the contract (a common problem in doubling the costs and timescales of major projects).

While PLCB’s sales rose between 2008 to 2010 financial periods, net profits from store operations dropped by 47%. The audit states “problems with the Oracle ERP system appear to be one of the primary causes of this major downturn in profits”. “Unfortunately (the Oracle system) was a waste of tax payer money that failed to do what it set out to do” said Jay Ostrich, PLCB’s Director of Public Affairs.

According to the audit report: the project stems to 2007, when a contract was signed for $25.8m. By 2009, following subsequent amendments, the contract value was boosted to $66.6m. A staggering  150% increase on the initial cost! Inventory forecasting software supplied did not work, causing untold problems. Requests to fix the issues were declined and PLCB had no choice but to solve the problem itself.

Now some of the problems experienced could have been caused by PLCB itself; an organisation must be ready to accept new business processes and provide the necessary resources. However, what were its advisors, Deloitte’s, doing in helping to guide their customer? And, apparently, Oracle appears to have considered this project to be a relative success, naming PLCB one of its Retail Excellence award winners. Small wonder PLCB declined to comment.

This isn’t good news. But leakage of time and money can be stopped, and stopped quickly. The good news is that problematic major projects, such as PLCB’s ERP system, that are not achieving business objectives can be put back on track quickly and more often than not at the vendor’s cost.

By the prudent application of a recent Court judgment, where a vendor represents itself as a specialist, then they are accountable for their advice and must fix errant projects, such as software/IT projects, fast. This is even if the contract is ambiguous or tries to exclude reasonable responsibilities for the vendor to make their projects work. In other words, PLCB could have put a stop to their problems, and saved precious tax payer’s money.

Prime Minister David Cameron vowed to end the era of vast Government IT projects that he said had dominated Labour’s time in power. In our experience this legacy of poor procurement has resulted in late, over-budget IT systems that are not fit for purpose.

A Cabinet Office spokesman said: ‘We have already made significant improvements to the management of IT projects including introducing new ICT controls, increasing transparency, and creating robust governance arrangements.’

We work extensively in local Government and have found that their operating practices, diligence and accountability in improving services with continually reducing budgets, is testamount to how IT systems can be implemented on-time, on budget and are fit for purpose. Central Government could well benefit from visiting the local authority community to help teach them a thing or two about improving efficiency and reducing costs.

And a review of the restrictive OJEU rules wouldn’t go amiss. The report recommends that departments across Whitehall use more small and medium sized IT suppliers to increase competition and bring down prices. But the problem lies in a huge barrier to entry for many firms; are they able to get on a Framework Agreement in order to bid for the work? Answer: No. The burden of bureaucracy simply swamps smaller businesses from effectively bidding.

It’s time that Government ceased looking at short term savings at the expense of long term benefits. Expert advice isn’t cheap, but its benefits can reap rewards many times its cost. Return on investment is the key.

Big is not always better; it’s time for ‘small is beautiful’.